How Liberal is Kerala’s Latest Liquor Policy?

Rahul V Kumar*

The hardline liquor prohibition policy of the previous United Democratic Front (UDF) Government in Kerala was debated more as a political issue than for its economic rationale. The outcome of this policy indicated that popular political whims could have serious unintended consequences. While there is an absence of systematic data indicating a decline in the use of alcohol, there are sufficient data indicating that drug abuse became prevalent following restrictions in the sale of liquor. This was enough evidence for the incumbent Left Democratic Front (LDF) Government to roll back the policy of prohibition. The LDF government’s new liquor policy is more a political statement that challenges the existing policy intended to phase out liquor sales in Kerala. Several bars with three and four-star status that were closed following the ban are proposed to be opened under the new policy. There are conflicting data on the exact number of bars that will start functioning in the state. The new policy has also raised the minimum age to purchase and consume liquor to 23 years. Moreover, the policy would give the toddy industry a big push by allowing the sale of toddy in bars. While the license fees to sell liquor through stores and other outlets are hiked, the new policy appears to liberalise the sector by increasing access to liquor in the state. However, the liquor industry in Kerala is still strictly controlled by the government, as it is in many other states in India.

As the new policy becomes operational, it is important to ask if it proposes any novel initiative that could transform the liquor sector of Kerala. A crucial transformation that liquor businesses in Kerala require is not mere access to liquor but access to quality liquor through quality outlets. If the new liquor policy cannot guarantee this aspect of liquor trade, then dingy bars and crowded consumer outlets will make a comeback in the state. Is there anything that the state of Kerala could do to effectively modernise these outlets? If there is then what are the constraints that prevent the State Government from taking specific steps towards this goal? Buying liquor from outlets in Kerala could be a time-consuming exercise at any time of the day. Long queues in front of these outlets are a common sight. Those who find it difficult to stand in queues have little choice but to visit bars, where taxes still pull up the price of liquor. Will the new liquor policy bring respite to the plight of these consumers? Increasing the price through taxes is supposed to be a disincentive for liquor consumers. The logic is that if liquor becomes unaffordable, people would buy less and thereby the state could demonstrate its commitment to the health of its citizens. This has not been a successful policy in Kerala.

Lack of asymmetric information alone does not cause market failure in the liquor sector of Kerala. Addiction that leads to overuse or abuse, which, in turn, begets crime, accidents and health hazards is a major worry. If prohibition has not been able to tackle these issues for a long time, it is worth experimenting what a liberal market in liquor has to offer. To formulate an effective liquor policy, we need to accept the fact that there is a large market for quality liquor in Kerala. The successive governments in Kerala have acknowledged that liquor is a major tax earner but have failed to accept that it is the market that creates this potential to tax and thereby provide revenue to various other state activities. Hence, the requisite is to support the market for liquor and frame rules that could make this market effective by avoiding failures. Even amidst aggressive taxing strategies as well as isolating the outlets in dingy corners, the market for liquor in the state has survived and seems to be thriving. This is indicative of the insatiable demand for the product. This also suggests that any attempt to control the liquor market would lead to a proportional increase in black markets.

The logical alternative then is to set certain broad rules for the liquor sector and liberalise the industry allowing access to foreign as well as local players. Alcohol consumption and sales are still a male-dominated sector in Kerala. Allowing retail chains to sell high-quality liquor products could change these gendered notions. Once we overcome such conventions, the sector could be a major source of employment for all genders. Such retails would better the choice available with the people and allow consumers to choose between vendors. Competition will then be among the vendors to ensure quality of products and services. Competition will allow the industry to set better standards not only in responsible drinking but also in ensuring that consumers have a choice between dingy outlets and well-maintained stores.

*The author is Research Consultant at Centre for Public Policy Research. Views expressed by the author is personal and does not reflect that of the organisation. 

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